Gold dented by slowdown worries

Gold eased on Friday and posted a sharp weekly loss as signs of global economic slowdown and fears of a US recession dented bullion's inflation-hedge appeal.

The metal posted a 1 per cent drop this week and has fallen in five out of the past six weeks. News that the euro zone swung into a recession, disappointing US economic data and Federal Reserve chairman Ben Bernanke's negative outlook on the housing recovery all kept pressure on gold.

Gold sagged as the S&P 500 equities index was on track for its largest two-week drop in about six months. Fears that the United States could lapse into recession if a combination of scheduled tax hikes and spending cuts is allowed to go forward weighed on all markets, analysts said.

"The severity of the recent equities decline has cast a shadow of fear over gold investors that continued capitulation in the stock market will force leveraged accounts to sell gold," said Jeffrey Sica, chief investment officer of Sica Wealth, which manages over $1 billion in assets.

Spot gold edged down 0.2 per cent to $US1712.60 an ounce, after it hit a one-week low of $US1704 on Thursday.

On the options front, heavy selling of a call spread between $US1700 and $US1670 an ounce for a low premium suggested dealers expected the market would not fall much lower, TD Bank precious metals strategists said in a note.

US equities edged up on Friday after Congressional leaders vowed to find common ground on taxes and spending that would allow them to head off the looming fiscal crisis after their meeting with President Barack Obama.

Gold's safe-haven status could shine in the case of failed talks and political paralysis, analysts said. Extreme fears over the first fiscal crisis last year and a downgrade of the US credit rating ultimately sent gold to its record high of $US1920.30 an ounce in September.

Also underpinning gold was rising geopolitical tension in the Middle East due to escalating rocket attacks between Israel and Palestinian militants.